Dollar holds breath before Fed meeting; sterling, krone
rise
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[December 12, 2017]
By Saikat Chatterjee
LONDON (Reuters) - The dollar drifted in
narrow ranges on Tuesday after strong recent gains as the U.S. Federal
Reserve geared up for a two-day policy meeting at which it is widely
expected to raise interest rates for the fifth time since late 2015.
The British pound and the Swedish krone led gainers as investors
squared positions in thin trading before the Fed's decision.
Investors will be watching for the Fed's assessment of the health of the
economy as that might change the market's views on the future path of
borrowing costs. Bond markets anticipate two further rate hikes next
year but Fed forecasters expect three.

"Although we do not expect (Fed chair) Janet Yellen to overly modify her
choice of judicious language, (President (Donald Trump's) ...tax cuts
... could feasibly allow far greater conviction in the speed with which
policy normalisation should proceed," said Neil Mellor, senior currency
strategist at BNY Mellon.
The dollar index held steady at 93.80 after rising more than 1 percent
last week, its biggest weekly rise since the end of October. But it is
still down more than 9 percent so far this year.
A Reuters poll of currency strategists published last week suggested the
dollar would remain on the back foot in the coming months and decline
2.5 percent against the euro over the next year to $1.22.
Sterling got only a temporary boost on Tuesday from data showing British
inflation unexpectedly nearly hit a six-year high in November with
markets focusing on Brexit negotiations.
The pound climbed to the day's high $1.3380 <GBP=D3> after the data, up
from $1.3335 beforehand, before slipping back to $1.33, up 0.2 percent
on the day.
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U.S. one hundred dollar
bills are seen in this picture illustration, August 2, 2013.
REUTERS/Kim Hong-Ji/Illustration/File Photo

"Liquidity appears solid and any sterling upside has limits given the
uncertainty before the Brexit deal," said Neil Jones, Mizuho's head of
currency sales for hedge funds in London.
The euro changed hands at $1.175 <EUR=EBS>, having pulled back from
Monday's intraday high of $1.1811.
The New Zealand dollar set a two-week high as investors welcomed the
appointment of national pension fund chief Adrian Orr, a former central
bank official, to head the Reserve Bank from March.
Investors were relieved by the selection of an experienced official and
expected he would not veer too far from the status quo as he carries out
his dual mandate.
The kiwi <NZD=D4>, which climbed nearly 1.1 percent on Monday following
the announcement, extended its gains on Tuesday and rose to $0.6953 at
one point, its highest since Nov. 10. It was last trading at $0.6943, up
0.5 percent on the day.
The Swedish krone bounced after inflation rose up to the government's
2-percent target in November, giving support to rate-setters and
analysts who believe the central bank should wind up its bond purchases
program at the end of this year.
The currency <SEK=> rose nearly a percent against the U.S. dollar on
Tuesday, breaking a 3 percent fall over the last two weeks.

(Reporting by Saikat Chatterjee; Editing by Andrew Heavens)
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